Transcript The impact of the refugee crisis on the euro area

The impact of the refugee crisis on
the Greek and wider EU economy
Yannis Stournaras
Bank of Greece
ECB General Council Meeting, 17 December 2015
17/12/2015
ECB Confidential
Key issues:
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The costs for transit countries have been underestimated – insights from
Greece.
Long-run negative effect on euro-area inflation is likely overestimated.
The impact on adjustment mechanisms in the euro area is not necessarily
positive.
Labour market and social integration is the key for long-term benefits.
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The refugee crisis is ongoing
with Greece being the main transit country
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Unprecedented influx of refugees in 2015.
A large degree of uncertainty: size of flows,
migrants’ demographics and skills, distribution
across the EU, costs, policies.
Greece is the main transit country:
Mediterranean Sea Arrivals to Greece in
2015: approx. 7,000 per day sea arrivals in October
2015
– 84% of all recorded Mediterranean sea arrivals;
– 27% children, 78% men (of adults), mostly young
people;
– 59% Syrians, 24% Afghans, 8% Iraqi in all arrivals
(UNHCR).
•
The trend in refugee influx is expected to
continue in the near future:
– 58% of Syrians arriving in Greece intend to bring
their family members to their country of asylum;
– 91% of them intend to apply for asylum elsewhere
(50% in Germany and 13% in Sweden) - UNHCR
questionnaire.
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The impact of the refugee crisis is first felt on
the transit EU countries – the Greek experience
•
Fiscal costs for transit countries could end up
higher than originally anticipated.
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The influx is taking place under challenging
economic and fiscal conditions as well as
administrative capacity constraints.
•
Higher costs arise from the need to considerably
increase capacity from current levels.
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Some refugees will remain in Greece, raising
fiscal costs of housing, food, medical supplies,
etc.
•
According to the Ministry of Migration Policy, the
estimated public spending costs for 2016 are
about 0.3% of GDP (≈ €600 million):
– conservative and tentative assessment;
– the part covered by EU-funds is still
undetermined.
•
Transit-specific costs: “search and rescue” costs
amount to 26% of the whole budget.
Distribution of estimated public
spending in Greece for 2016
2.8%
26.3%
35.7%
20.6%
6.5%
8.1%
1. Search and rescue
2. First reception facilities
3. Transfers from islands to mainland
4. Asylum and relocation
5. Open reception facilities
6. Return
Source: Ministry of Migration Policy
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Unprecedented local shocks: flows in 2015 were highest
recorded and grew fastest in two small Greek regions
Illegal migrant flows % of total illegal
flows, by region, Jan-Sep 2015
100%
North
Aegean
80%
60%
40%
Southern
Aegean
20%
Attica
0%
-20%
-5%
0%
5%
10%
15%
20%
region population % of total
25%
30%
35%
NB: bubbles' size reflects 2014-15 growth in migrant flows
Source: Hellenic Police and Hellenic Coast Guard and Ministry of Internal Affairs, BoG calculations.
• The situation is highly concentrated in a few remote islands and small
communities –half of all sea arrivals are in Lesvos island.
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Additional non-fiscal costs currently
hard-to-quantify
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The refugee crisis has strong local effects:
– The few Greek islands that received most of the migrant influx have experienced a
disruption in economic activity, especially tourism;
– The negative shock on activity is likely to persist at least into 2016, as deteriorating
confidence negatively affects consumption and investment.
Negative spillover effects on tourism in other regions.
Cancellations in affected regions posted a sharp increase in 2015. Tourist operators
report negative effects on tourism in 2016 throughout Greece.
Negative impact on trade due to disruptions in the cross-border traffic of goods.
Uncertainty and disruptions in local economic activity may divert investment and FDI
flows away from the region.
There are opportunity costs of using public resources at a time of strict fiscal
retrenchment.
The continuation/worsening of the crisis adds a downside risk factor to the Greek
economy’s outlook.
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Short- and long-term effects – a first assessment
Research from international institutions points to:
– Short run: higher GDP (due to higher government spending), higher inflation (demand effect).
– Long run: higher labour supply and potential output, lower inflation; positive impact on
pension systems and fiscal balances.
– However, labour shortages in countries such as Germany tend to be in high-skilled positions
(engineering, medicine). The absorption of refugees into the labour force will depend on the
skill composition.
– Experience has shown that labour inflows have decreased the wages of low-skilled workers.
Some issues:
• The Greek experience shows that costs for transit countries are underestimated.
• The long-run benefits critically depend on labour force participation and employment of refugees.
• The skill-composition of refugees is critical for wage dynamics, e.g. downside pressure on wages is
greater, the lower the skills of refugees.
• Overall, the positive supply-side effects are subject to great uncertainty, while the positive
demand-side effects are less ambiguous (increased government spending, non-tradeable services
and housing demand).
• This suggest that downward inflation pressures may be overestimated:
– Expected increases in rents and demand for non-tradable services may counterbalance the
negative supply-side effect on inflation, even in the longer term.
• Both transit and destination countries face considerable short-term fiscal challenges. However, any
long-term benefits to economic growth and fiscal balances would be specific to destination
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countries.
The refugee crisis adds more to existing imbalances
across the euro-area – transit vs. destination
The background to the crisis
• Euro-area adjustment following the financial and sovereign crisis is ongoing.
• Persistent regional differences in unemployment (Greece >25%, Germany: 5%) and in
fiscal positions.
Implications for adjustment
• Additional government spending in destination countries is unlikely to have a major
beneficial effect on adjustment in the euro area since it will be concentrated on nontradable services and housing. Thus it will not boost imports and, hence, will not
contribute to a rebalancing of current accounts throughout the euro area.
• Labour mobility is a major adjustment mechanism in monetary union. However, it is
weak in the euro area and is likely to become weaker as a result of the crisis.
– Immigration to core euro-area countries has risen substantially, but much of that
immigration was from non-euro-area (especially Eastern European) countries;
– To the extent that the flow of refugees to core countries acts as a substitute for
labour from the crisis countries, the adjustment mechanism of labour mobility will
be weakened further.
– Immigration from Eastern European countries will also be weakened.
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Conclusion: policy actions are necessary to reap
potential long-term benefits of refugee influx
Steps must be taken to ensure labour market integration of refugees
• Early registration and evaluation of refugees’ skills.
• Distribution of refugees across regions needs to take into account local labour market
conditions (level of unemployment), paying special attention to skill-matching efficiency.
• Ensure efficient and speedy recognition of refugee qualifications acquired in their home
countries.
• Involve refugees in active labour market programmes, including vocational and language
programmes.
• Flexible labour markets support labour force participation by refugees and encourage
employment in the formal sector.
All this is not possible without the social integration of refugees.
The integration of refugees should also be viewed within the context of adjustment
mechanisms in the euro area:
• Labour mobility of European citizens should be encouraged within the euro area to facilitate
rebalancing.
• The fiscal consequences of the refugee influx should not be seen to contributing to
rebalancing in such a benign way.
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Additional Slides
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Annex I: Syrian Refugee Arrivals in Greece
Preliminary findings based on the Questionnaire by UNHCR*
Age distribution
Educational attainment
80%
69%
70%
12
60%
2
43
50%
40%
30%
21%
43
20%
10%
9%
2%
0%
12-17
18-35
36-59
60+
University
Secondary
Primary
Other
• 50% are single, 45% are married
• The interviewees gave a wide range of answers as to their last employment (the most
common answer: student – 16%)
• 58% intend to bring their family members to their country of asylum
• 91% interviewed intend to apply for asylum elsewhere in the EU (50% in Germany and 13% in
Sweden)
• The main reasons for choosing another country to apply for asylum are: employment
opportunities (57%), assistance and rights for refugees (53%), family and social network
(34%) and education opportunity (30%)
* April-September 2015, based on 1,245 interviews
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Annex II: Implications of the refugee influx since the crisis
in Greek islands –substantial regional/local effects
• Capacity constraints in both infrastructure and public administration (e.g.
limited number of doctors and nurses, city and port policemen, municipal
and city clerks etc.) in small islands affecting negatively the local
population.
• Public sector operational costs skyrocketed in the affected islands.
• Economic activity was disrupted and jobs were lost in North Aegean
islands.
– Island of Kos: 400% increase in booking cancelations over the summer.
– Islands of Leros and Lesvos: 30% increase (in each island) in booking
cancelations over the summer.
– Pre-bookings for 2016 were 60% down in the island of Kos over the summer.
– Double-digit cancellations of cruise-ships arrival in the islands of Kos and
Lesvos over the summer.
– Numerous charter flights to the islands of Kos and Lesvos were cancelled.
Source: Ministry of National Economy, Report on the implications of refugee influx in Aegean islands, September, 2015.
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